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Public Safety Employees Local 92 v. Alaska (5/26/95), 895 P 2d 980
NOTICE: This is subject to formal correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, (907)264-0607.
THE SUPREME COURT OF THE STATE OF ALASKA
PUBLIC SAFETY EMPLOYEES )
ASSOCIATION, LOCAL 92, )
INTERNATIONAL UNION OF POLICE )
ASSOCIATIONS, AFL-CIO, ) Supreme Court No. S-5876
) Superior Court No.
v. ) 1JU-91-1819 CI
STATE OF ALASKA, ) O P I N I O N
Appellee. ) [No. 4213 - May 26, 1995]
Appeal from the Superior Court of the
State of Alaska, First Judicial District,
Walter L. Carpeneti,
Appearances: James A. Gasper, Jermain,
Dunnagan & Owens, Anchorage, for Appellant.
Virginia B. Ragle, Patrick Gullufsen,
Assistant Attorneys General, and Bruce
Botelho, Attorney General, Juneau, for
Before: Moore, Chief Justice,
Rabinowitz, Matthews, Compton and Eastaugh,
This dispute arises out of arbitration proceedings
between the State and the Public Safety Employees Association
(PSEA). An arbitrator held that the State was obligated to pay
certain employees geographic differential increases commencing
September 1, 1990. The State maintained that it could not pay
the differential increases by that date. It claimed that the
Public Employment Relations Act (PERA), AS 23.40.070-23.40.260,
required that the legislature appropriate the funds necessary to
pay the increases. However, since the legislature was in recess
and would not reconvene until sometime after September 1, the
State could not obtain an appropriation in time to comply.
When September 1 passed without payment, PSEA initiated
another arbitration proceeding. The arbitrator concluded that
the State could have implemented the increases without
legislative approval. This could have been accomplished via a
reduction in staffing and a reallocation of resources.
Accordingly, the arbitrator ruled that penalty pay was due from
September 1 until the differential increases were fully paid.
The State disputes this penalty.
The State appealed the arbitrator's decision to the
superior court. The superior court granted the State's motion
for summary judgement, holding that until the legislature
appropriated funds to pay the increases, there was no
underpayment; hence, no penalty pay was due.
PSEA appeals. We affirm.
II. FACTS AND PROCEEDINGS
This dispute grows out of three separate arbitration
proceedings between the State and PSEA. It is the third
proceeding that is at issue.
Pursuant to provisions of PERA, a mandatory interest
arbitration proceeding was initiated to resolve certain
bargaining issues on which the State and PSEA were unable to
reach agreement during their attempt to establish a successor
collective bargaining agreement. See AS 23.40.200. In the first
proceeding, the arbitrator noted that Article XVII Section 3 of
the collective bargaining agreement became effective May 16,
1990, per agreement of the parties. This provision required that
[T]he Employer shall verify pay
shortages within two (2) working days
following receipt of a dated and written
complaint accompanied, when necessary, by a
corrected Payroll Report signed by the
member's supervisor. In the event that a pay
shortage is determined to exist, the Employer
shall issue payment for the shortage within
five (5) working days of the date of
verification. For pay shortages exceeding
$400 above the normal base rate of pay, or
shortages to the normal base rate of pay,
and/or geographic pay levels, not received
within the five (5) days, there shall be a
penalty of $40 per day. Other pay shortages
not received with the next warrant shall be
subject to the $40 per day penalty rate.
Penalty pay for any single pay shortage
incident shall not exceed $400 per calendar
In the second arbitration proceeding, the arbitrator
ordered the State to implement PSEA-requested geographic pay
differential increases for sixty-four employees, effective
September 1990.1 However, the State chose not to implement the
increases in September 1990. In an internal memorandum from the
Commissioner of Administration to the Governor's Chief of Staff,
the State contemplated two options in making what it deemed a
[a] policy decision as to whether the
Department of Public Safety (DPS) should 
be allowed to absorb the increased cost, or
 whether the increase should be submitted
to the next legislative body for
appropriation as a "monetary term"under . .
. AS 23.40.215(a).
The second option originates from the language of AS
23.40.215(a), which provides:
The monetary terms of any agreement
entered into under [PERA] are subject to
funding through legislative appropriation.
Further, "monetary terms of any agreement"are defined as
the changes in the terms and conditions
of employment resulting from an agreement
that will require an appropriation for their
implementation or will result in a change in
state revenues or productive work hours for
In examining the options set forth by the memorandum,
the Commissioner of Administration stated:
The Division of Labor fears the
contagion effect for other contracts if this
issue is not submitted expressly to the
legislature for review and funding.
Ultimately, the State elected not to comply with the deadline the
arbitrator set, but instead, to seek legislative funding before
implementation. The Commissioner concluded:
[C]onsistent application is necessary to
preserve future arguments that monetary terms
cannot be implemented for bargaining units
absent legislative approval. . . . [E]ven if
[DPS] could absorb this unbudgeted expense,
other departments . . . would be expected to
absorb such costs in the future . . . [.]
Accordingly, the State submitted funding of the differential
increases to the legislature when it next convened. The
legislature approved the increases and appropriated money for
them, effective July 1991 retroactive to September 1990.
PSEA maintained that the State should be liable for the
penalty for non-payment of the increases from the ordered
September 1990 payment date through the time the increases were
actually implemented. The State disagreed. When the State did
not meet the September 1990 mandated payment date, PSEA filed a
grievance. Although the legislature had not approved the
increases, PSEA insisted not only that the higher wages be
implemented, but also that the penalty for non-payment be
The Commissioner of Administration denied the request,
citing not only AS 23.40.215, but also Article XXXIII of the
collective bargaining agreement. Article XXXIII provides that
the collective bargaining agreement is to "in all aspects comply
with and be subordinate to federal laws and Alaska Statutes."
Additionally, the collective bargaining agreement states that
"[t]he arbitrator shall not be empowered to rule contrary to . .
. any of the provisions of this Agreement."
PSEA appealed denial of the grievance. This resulted
in the third arbitration proceeding.3 The parties stipulated to
the issue facing the arbitrator:
Is the employer obligated to implement
on September 1, 1990, the award of the
interest arbitrator on the geographic pay
differentials? And, if so, what is the
The arbitrator held that the State was obligated to pay the
penalty for the delay in implementing the geographic differential
increases. He addressed several factors: case law, an attorney
general's opinion, and the internal memorandum from the
Commissioner of Administration to the Governor's Chief of Staff.
The arbitrator's conclusion seemed to be primarily based on case
law that interpreted the applicable statutory provisions, and on
the appearance that the State's decision not to comply
immediately with the order was due to policy considerations
rather than concern about statutory compliance. Ultimately, the
arbitrator concluded that (1) legislative approval was not
required for monetary terms of an agreement that could be
implemented by a reallocation of already appropriated funds or
resources; (2) the State could have effectuated the pay
differentials by this means; and (3) this would have meant a
reduction in the work force.
The State filed suit. In its complaint, it requested a
declaratory judgment that the arbitration award was
unenforceable, and that the arbitration award be vacated. PSEA
counterclaimed, alleging a breach of contract. It requested that
the arbitration award be upheld. The superior court granted the
State's motion for summary judgment, and denied PSEA's cross-
motion on its counterclaim. The superior court held that until
the legislature made an appropriation for the increases, there
was no shortage; thus no penalty pay was due.
A. Standard of Review
We have repeatedly held
The standard of review applicable to
summary judgments is de novo. Specifically,
"summary judgment is affirmed if the evidence
in the record fails to disclose a genuine
issue of material fact and the moving party
is entitled to judgment as a matter of law."
Dayhoff v. Temsco Helicopters, Inc., 848 P.2d 1367, 1369 (Alaska
1993) (quoting Dayhoff v. Temsco Helicopters, Inc., 772 P.2d
1085, 1086 (Alaska 1989)) (citation omitted).
On questions of law, this court is not
bound by the lower court's decision . . . .
Our duty is to adopt the rule of law that is
most persuasive in light of precedent,
reason, and policy.
Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).
In arbitrations conducted under Alaska's Uniform
Arbitration Act, an arbitrator's findings of fact are
unreviewable even in the case of gross error. Ahtna, Inc. v.
Ebasco Constructors, Inc., Op. No. 4178 at 8 (Alaska, March 10
1995). An arbitrator's conclusions of law, including conclusions
concerning the meaning of the parties' contract, are likewise not
reviewable except with respect to questions concerning
arbitrability. Id. at 11. When arbitrability is the issue, the
standard of review concerning questions of law is whether the
arbitrator's conclusion is reasonably possible. Id. at 12. The
Uniform Arbitration Act does not ordinarily apply to arbitration
conducted under a labor management contract. AS 09.43.010. The
standard of review of grievance arbitration arising out of a
labor management contract not subject to the Uniform Arbitration
Act is broader than that employed in Uniform Arbitration Act
cases. In grievance disputes "gross error" is the standard.
Nizinski v. Golden Valley Electric Ass'n, Inc., 509 P.2d 280, 283
(Alaska 1973). "Gross error"is defined as "only those mistakes
which are both obvious and significant." City of Fairbanks v.
Rice, 628 P.2d 565, 567 (Alaska 1981). Compulsory interest
arbitration arising in a labor management contract is subjected
to a third and more searching standard.4 We have adopted the
arbitrary and capricious standard for review of awards in
compulsory interest arbitrations arising under PERA. State v.
Public Safety Employees Ass'n, 798 P.2d 1281, 1287 (Alaska 1990).
In Municipality of Anchorage v. Anchorage Police Department
Association, 839 P.2d 1080 (Alaska 1992), we observed that
compulsory interest arbitration under the Anchorage Municipal
Code would be reviewed under an abuse of discretion standard, a
standard that we impliedly equated with the arbitrary and
capricious standard. Id. at 1088.
In State v. Public Safety Employees Association, 798
P.2d 1281 (Alaska 1990), we focused on the reasons why compulsory
arbitration should be subjected to more penetrating review than
When parties agree to submit their
differences to an arbitrator, they should be
bound by his decision. Courts should be
reluctant to upset arbitrators' awards, lest
the advantages of arbitration as a fast and
certain means of resolving disputes be lost.
Occasional uncorrected errors in arbitrators'
decisions are tolerable because the parties
have agreed to accept reduced possibilities
of appellate review in order to have their
dispute resolved quickly and with certainty.
Compulsory arbitration is different. The
parties have not agreed voluntarily to accept
reduced possibilities of appellate review in
order to resolve their dispute swiftly. It
is by operation of law that the parties are
denied their usual right to have their
disputes resolved by the courts. Therefore,
a standard of review higher than gross error
Id. at 1287.
Interest arbitration in the public sector also requires
a less deferential standard of review for a separate set of
reasons. These reasons relate to the possibility of abuse of the
delegated legislative power of setting the salaries and benefits
of public employees.
[T]his is a subject matter area of
complexity (i.e. guidance of arbitrators in
dealing with the complex and potentially
volatile issues that might arise during labor
negotiations) which has the capacity for
grave and harmful effects on the public
Municipality of Anchorage, 839 P.2d at 1089 n.20.
The superior court relied upon Corpus Juris Secundum,
in defining "arbitrary and capricious"as having "no substantial
basis for support." This standard does not adequately reflect
the increased scrutiny that this court requires when reviewing an
award resulting from compulsory interest arbitration.
PSEA argues that this court should adopt a definition
of "arbitrary and capricious"that is more deferential to the
arbitrator's decision than even the "gross error" standard.
However, adoption of this definition would run contrary to this
court's rationale in differentiating between the standards of
review we apply to awards resulting from voluntary arbitration on
the one hand and compulsory interest arbitration on the other.
Compulsory interest arbitration awards are subject to a more
scrutinizing review than are voluntary arbitration awards. State
v. Public Safety Employees Ass'n, 798 P.2d 1281, 1287 (Alaska
1990). Accordingly, we reject PSEA's argument that "if an
arbitrator has authority to determine the law in construing the
parties [sic] bargaining agreement, or setting its terms, the
parameters of 'reasonableness' suggest that an arbitrator's
decision, if reasonably contemplated within the parties'
submissions, will not be arbitrary and capricious if it decides
the issue presented."
This court has stated:
The general rule in both statutory and
common law arbitration is that arbitrators
need not follow otherwise applicable law when
deciding issues properly before them, unless
they are commanded to do so by the terms of
the arbitration agreement.
University of Alaska v. Modern Constr. Inc., 522 P.2d 1132, 1140
(Alaska 1974) (emphasis added). The arbitration agreement in
issue mandates that the arbitrator must follow the applicable
law. The parties provided in the collective bargaining agreement
shall in all aspects comply with and be
subordinate to federal laws and Alaska
Statutes in effect at the time of the signing
of this Agreement or hereafter enacted.
Additionally, the arbitration clause of the agreement states
that, "The arbitrator shall not be empowered to rule contrary to
. . . any of the provisions of this Agreement." Because the
terms of the agreement command the arbitrator to follow the
applicable law, it is appropriate for this court to consider
whether the arbitrator correctly applied the law. See id. We
hold that the arbitrary and capricious standard was violated
because the arbitrator failed to apply correctly controlling
statutory provisions in reaching his decision.
The facts of this case provide an additional, similar
basis for this court to review the arbitrator's award. As
discussed, an arbitrator's determinations must be legally correct
when his or her authority comes from an agreement that specifies
that it "shall in all respects comply"with the law. Similarly,
when arbitration is statutorily compelled, the award resulting
from this dispute resolution process should necessarily be in
accordance with other provisions contained in that body of
legislation. The arbitrator's application of the law must be
reviewed. Otherwise, the arbitration award potentially could
contravene provisions of the very legislation that mandated the
B. Statutory Requirements and the Arbitrator's Decision
The trial court observed: "PSEA does not appear to
dispute that the penalty provisions are `monetary terms of an
agreement' as defined in AS 23.40.250(4)." Likewise, in its
briefing to this court, PSEA does not dispute the contention.
However, the arbitrator relied on the perceived ability of the
State to reallocate its present appropriation (including
reallocating existing resources) to circumvent the requirement of
legislative approval in implementing the differential increase
award. In effect this is a ruling that the increase did not fall
under "monetary terms of an agreement" as defined by AS
23.40.250(4). The superficial appeal of this argument is
undercut by understanding its practical effect. Were the State
either free or required to reallocate its present appropriation
and resources in this manner, the appropriation power of the
legislature would be frustrated.5
C. Case Law and the Statutory Language
On its face the language of PERA mandates that
"monetary terms of any agreement" entered into under its
provisions "are subject to funding through legislative
appropriation." AS 23.40.215. Since PSEA does not contend that
the geographic differential increases fall outside the definition
of a "monetary term of an agreement,"the statute appears to
compel legislative approval.
Adding significant force to this interpretation of the
statutory language are two decisions by this court. In Public
Employees' Local 71 v. State, 775 P.2d 1062 (Alaska 1989), we
From our independent review of [AS
23.40.215(a)], it is clear that monetary
terms of a collective bargaining agreement
are not effective until the funds are
appropriated by the legislature.
Id. at 1064. More specifically, in State v. Public Safety
Employees Association, 798 P.2d 1281 (Alaska 1990), we implied
that it would be acceptable for the legislature not to fund an
arbitration award levied under PERA. See id. at 1285 n.7
(encouraging a legislative response to the lack of a statute of
limitations for collateral attack on a PERA arbitration award
even though concerns about finality still would not be completely
alleviated, since the legislature might elect not to fund an
arbitrator's award). These two cases in combination suggest that
if an arbitration award affects "the monetary terms of any
agreement," legislative approval is required before the terms
become effective. Hence, penalties for nonpayment would not
accrue until the date when legislative approval is obtained.
Despite this combination of statutory language and case
law, the arbitrator concluded that legislative approval of
differential increases was not required to implement them. To
reach this conclusion, the arbitrator found it necessary to give
an alternate interpretation to this court's opinion in Local 71.
The arbitrator rejected the argument that Local 71 mandated that
all monetary terms of a collective bargaining agreement become
effective only when they are approved by the legislature,
regardless of their fiscal impact. Instead he concluded that "an
agency can implement monetary terms with existing funds until the
legislature approves the terms and incremental funding (or
disapproves them)." To reach this interpretation, the arbitrator
gave controlling weight to a footnote in Local 71, which cited a
superior court holding:
The superior court for the first
judicial district has also held that the
monetary terms of an agreement are not
enforceable until the legislature
appropriates the required funding.
Local 71, 775 P.2d at 1064 n.5 (quoting Alaska Public Employees
Ass'n v. State, No. 1JU-79-538 Civ. and Public Employees Local 71
v. State, No. 1JU-79-983 Civ. (Alaska Super., Dec. 24, 1979)).
The arbitrator focused upon the phrase "required funding," and
reasoned that the footnote
supports an interpretation that a union
can enforce the provision of benefits that
require incremental funding only after the
Legislature appropriates the `required'
funding[,] but [the Union] may receive those
benefits if the agency can provide them
without additional funding.
This analysis6 is unpersuasive for two reasons.7
First, the arbitrator has interpreted the footnote without regard
to the text that accompanies it, even though it is logical that
the text should receive primary emphasis. The text makes it
clear that legislative approval is required before any monetary
agreement terms become effective. The Local 71 court did not say
that "[i]t is clear that monetary terms of a collective
bargaining agreement requiring legislative approval are not
effective until the funds are appropriated by the legislature."
The Local 71 court did not suggest differentiating between
agreements that do and do not require legislative approval. This
is appropriate, given that the court was interpreting a statute
that reads that "monetary terms of any agreement entered into
under (PERA) are subject to funding through legislative
appropriation."8 AS 23.40.215(a) (emphasis added).
Second, and more importantly, the arbitrator concluded
that "absorption of the cost [of the differentials] would require
reductions in force in a labor-intensive agency on which the
public depends for its safety." (Emphasis added.) This invokes
the appropriation requirement provisions of AS 23.40.215(a),
since "monetary terms of any agreement" include those that
"change . . . productive work hours for state employees." AS
23.40.250(4). The arbitrator ignored this statutory language.
Therefore, on this basis alone, the arbitrator's decision was
arbitrary and capricious. He did not consider statutory
provisions that prohibit the alternative that he held the State
should have pursued.9
The arbitrator was bound by applicable law in
accordance with the agreement of the parties. Furthermore, the
arbitration proceedings were compelled by statute and were
contract formative in nature. The arbitrator's analysis
misconstrues and ignores significant statutory provisions from
this body of legislation, as well as case law interpreting these
statutes. Therefore, the superior court was correct in refusing
to enforce the arbitrator's award. The arbitration award was
arbitrary and capricious. The judgment of the superior court is
1 In their briefs, the parties have not quantified the
amount of penalty pay, nor does it appear in the record. It is
estimated that the penalty would be applicable to 64 individuals;
however, the record indicates that a small number of these might
be excluded. Therefore, the estimated penalty would be
$400/month x 64 individuals x 10 months (Sept. 1990 - June 1991)
2 The quoted excerpts are taken from the arbitrator's
3 It is unclear whether the third arbitration proceeding
was mandated by AS 23.40.200(b) or by terms of the collective
bargaining agreement. Even if it were the latter, inclusion of
the arbitration provision is mandated by AS 23.40.210. In either
case, the arbitration was compulsory and not voluntary.
4 Interest arbitration is arbitration which establishes
new contract terms. Compulsory arbitration is arbitration
mandated by statute. State v. Public Safety Employees Ass'n, 798
P.2d 1281, 1283 (Alaska 1990).
5 Because we hold that the arbitrator's award was flawed
because it violated statutory mandates, it is not necessary for
us to address the State's constitutional argument that the
arbitration award vitiates the Alaska Constitution's assignment
of the appropriation function to the legislature. See Puller v.
Municipality of Anchorage, 574 P.2d 1285, 1288 (Alaska 1978) (in
light of statutory construction, court does not reach
constitutional issue argued in the appeal).
6 The arbitrator's analysis also distinguished Local 71
on the basis that, unlike the instant case, the legislature did
not approve the additional appropriation. The arbitrator
reasoned that in Local 71, the applicable statutory remedy was
for the parties to begin renegotiating the provision; in the
instant case, the legislature approved the funding, "thereby
opening the liability notion" regarding penalty pay. This
argument fails because, as will be discussed, the statutory
scheme compels legislative approval before funding of the
increases is required; therefore, no penalty can accrue until
the legislature properly appropriates for the pay increases.
7 The arbitrator also supported his reasoning by citing
the memorandum in which State officials considered the payment of
the increases via a reallocation of funds that had already been
appropriated by the legislature. Because the State officials
contemplated this as an option, the arbitrator concluded that
this contemplation was evidence that it was not generally
accepted that all monetary terms required legislative approval.
This logic is flawed. Merely because public officials
contemplate taking an action does not by any means indicate that
it is lawful to do so.
8 In interpreting Local 71, the arbitrator also relied on
an Opinion of the Attorney General. In the relevant portion of
that opinion, the Attorney General concluded that group health
and life insurance benefits for public employees were subject to
collective bargaining under PERA. The question arose because the
Commissioner of the Department of Administration questioned
whether PERA's requirements superseded the group life and heath
insurance statute and statutes that established the Public
Employees Retirement System. 1978 Formal Op. Atty. Gen. No. 3,
at 1 (Jan. 23, 1978). The arbitrator quoted a portion of the
opinion which stated:
To the extent the cost of this
negotiated coverage exceeds what the State
would have paid under its employer-sponsored
plan, the negotiated coverage is subject to
legislative approval under AS 23.40.215.
The arbitrator's reliance on this opinion is not
persuasive. The opinion indicates that the legislature had
already budgeted for some coverage, and that it was any
incremental coverage resulting from negotiations that would
require separate approval. This is precisely what the State is
arguing in this case: that the incremental pay due to the
imposition of geographic differential increases requires
9 PSEA also offers a contractual impairment argument
based largely on District 2A v. Government of the Virgin Islands,
794 F.2d 915 (3d Cir. 1986). PSEA argues that the arbitration
result is binding on the executive branch, and that the executive
branch has an obligation to fulfill its terms, even if the
legislature ultimately denies the corresponding appropriation.
This rationale misconstrues the holding of District 2A. That
case did hold that the executive branch could not intentionally
circumvent the obligations resulting from binding arbitration if
the legislature approved funding; however, there was no binding
obligation on the State to fulfill the arbitration result if the
legislature did not approve the arbitration award funding. "The
[Public Employee Labor Relations] Act simply direct[ed] the
government, in its capacity as an employer, to pay a salary set
by the arbitration panel subject to the Legislature's final
approval." District 2A, 794 P.2d at 920.